PPG Industries, Inc. (PPG)

PPG 
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PPG Industries (PPG)

Q2 2011 Earnings Call

July 21, 2011 2:00 pm ET

Executives

Vincent Morales - Vice President of Investor Relations

Charles Bunch - Chairman of the Board, Chief Executive Officer and Member of Operating Committee

Analysts

Brian Maguire - Goldman Sachs Group Inc.

David Begleiter - Deutsche Bank AG

Donald Carson - Susquehanna Financial Group, LLLP

Robert Koort - Goldman Sachs Group Inc.

John McNulty - Crédit Suisse AG

John Roberts - Buckingham Research Group, Inc.

Frank Mitsch - BB&T Capital Markets

Kevin McCarthy

Robert Reitzes - Bear Stearns

Dmitry Silversteyn - Longbow Research LLC

P.J. Juvekar - Citigroup Inc

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 PPG Industries Inc.'s Earnings Conference Call. My name is Carol, and I will be your coordinator for today. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes. It is now my pleasure to turn the presentation over to begin with to Mr. Vince Morales, Vice President, Investor Relations. Vince, you may begin.

Vincent Morales

Thank you, Carol. Good afternoon. This is Vince Morales, Vice President of Investor Relations for PPG Industries. Welcome to PPG's Second Quarter 2011 Financial Teleconference. Joining me on the call today from PPG are Chuck Bunch, Chairman of the Board and Chief Executive Officer; and Dave Navikas, Senior Vice President, Finance and Chief Financial Officer.

Our comments relate to the financial information released on Thursday, July 21, 2011. As a reminder to everyone, based on our modified quarterly earnings call process, about one hour ago, we posted detailed commentary and accompanying presentation slides on our Investor Center at our website at ppg.com. These slides are also available on the webcast site for this call.

We do not read these prepared remarks during the call. During the call, Chuck will share his overall perspective on the company's results for the quarter, and then we'll move directly to Q&A.

Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view about future events and their potential effect on PPG's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements.

This presentation also contains certain non-GAAP financial measures. The company has provided in the appendix of the presentation materials, which are available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For any additional information, please refer to PPG's filings with the SEC.

Now let me introduce PPG's Chairman and CEO, Chuck Bunch.

Charles Bunch

Thank you, Vince, and welcome, everyone. Today, PPG announced earnings per share, which are up 30% versus the prior year and a record for any quarter in the company's history. This represents 4 consecutive quarters in which we delivered record earnings, underscoring the benefits of our broad end-use market reach and the global business portfolio we have built.

Perhaps more importantly, our solid execution and operational excellence played a key role toward a strong performance in the quarter. We delivered higher pricing in every segment and continued our hallmark of aggressive cost management. This allowed us to overcome several transitory factors that impacted volumes in several of our businesses, including the full brunt of the automotive OEM industry production curtailments due to supplier disruptions related to the Japan crisis, scheduled and unscheduled production downtime in our Commodity Chemicals segment and poor weather conditions for architectural painting in the United States early in the quarter.

The month of April was most heavily impacted by these factors, and our year-over-year volumes were negative in that month. Our volumes rebounded soundly in the remainder of the quarter to a growth rate comparable to the past several quarters. We posted positive volume growth in all regions, with Asia Pacific delivering the highest growth rate once again, driven by solid industrial gains in China.

Our coatings segment delivered excellent results. The Performance Coatings segment established a new earnings record, and the Industrial Coatings segment matched their second quarter earnings record. This was done despite operating margins for these segments that dropped modestly versus last year as a result of the weakened April volumes and a European architectural home center customer bankruptcy charge. Our coatings margins in the months of May and June were consistent with the prior year as volume growth resumed, and all 8 of our coatings businesses delivered higher pricing.

Our Optical and Specialty Materials segment also achieved record quarterly sales and earnings. This performance was despite increased optical advertising costs as we broadened our geographic exposure by capitalizing on high growth opportunities in the emerging regions where we have delivered sales growth of 30% this quarter. Commodity Chemicals sales grew due to higher pricing, and earnings doubled despite increased maintenance costs and lower facility utilization due to extended downtime.

Glass results also improved on strong fiberglass pricing. Lastly, we have continued to deploy cash on earnings-accretive initiatives. In doing so, we have remained mindful of our tradition of returning cash to our shareholders. Fully illustrating that tradition is that over the past 12 months, we generated $1.2 billion in cash from operations and have returned 100% of that cash to shareholders in the form of dividends and share repurchases.

This past quarter, we also finalized a few acquisitions and pre-paid $400 million of debt that was not due until 2012. In summary, I'm pleased that we were able to deliver record results despite some uncommon events this past quarter. We relied heavily on our strong execution, a PPG heritage and were aided by our portfolio balance.

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